The interest in spot Bitcoin ETFs among financial institutions such as banks and brokerages is surging as they push for the Securities and Exchange Commission (SEC) to change the definition of crypto assets.
Under the new definition, they would have a bigger role in crypto, such as being Bitcoin ETF custodians.
Banks Petition SEC for Crypto Revisions
On February 14, a coalition of trade groups, including the Bank Policy Institute, American Bankers Association, Financial Services Forum, and Securities Industry and Financial Markets Association, sent a letter to SEC Chair Gary Gensler with a request. It highlighted the recently approved spot Bitcoin ETFs and noted the absence of American banks as custodians for these products.
The coalition requested that the SEC revisit and consider modifying the Staff Accounting Bulletin 121 (SAB 121), issued in March 2022, providing guidance on accounting for crypto asset custody obligations. They pointed out that it has been two years since the guidance issuance, and significant developments have occurred during this period, including the approval of spot Bitcoin ETFs.
The current guidance outlined in SAB 121 mandates that banks hold digital assets on their balance sheet, which is deemed costly and restricts their capacity to offer crypto custody services at a larger scale. The group wants the SEC to narrow the definition of cryptocurrencies to exclude traditional assets recorded on the blockchain, ensuring that assets such as tokenized deposits are not subject to strict crypto guidance.
Furthermore, they have requested that banks be exempted from the on-balance sheet requirements stipulated in SAB 121. However, they advocate for maintaining the disclosure requirements, enabling banks to participate in certain crypto activities while ensuring investors’ transparency.
FOMO Grapples Banks with Crypto ETFs’ Exclusion
In a post on X, Bitwise chief investment officer Matt Hougan remarked that the letter indicates Bitcoin ETFs have shifted the “tone around crypto regulation in Washington” as banks are eager to participate in the “digital financial wave.”
A weekly Bitcoin newsletter author, The Bitcoin Therapist, pointed out that the Q1 FOMO is already driving banks mad since they cannot hold BTC ETFs for their customers.
Meanwhile, as Bitcoin exchange-traded funds (ETFs) continue to gain momentum, the investment class is becoming increasingly appealing compared to traditional assets like gold. Recent reports indicate a significant shift in investor sentiment, with over $3 billion worth of gold exchange-traded funds (ETFs) being divested since the beginning of the year.
On the other hand, Bitcoin ETFs have been surging and have managed to amass over $4 billion in inflows, even though they are only 1/13th the size of the gold ETF market.
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